governance, political economy, institutional development and economic regulation

On Monday, May 22, 2017 CBI Special Judge, Bharat Parashar will sentence the five accused, convicted by him on May 19, 2017. Among the convicted are three officers – H.C. Gupta, retired Secretary of the Ministry of Coal (MOC) and two of his juniors, convicted under the Indian Penal Code (IPC) for criminal conspiracy and cheating and under the Prevention of Corruption Act, 1988 (PCC), for obtaining undue pecuniary advantage, against the public interest, for M/s Kamal Sponge Steel and Power Ltd (KSSPL).

The fearsome consequences of a criminal conviction

The conviction under the IPC invites a maximum sentence of up to six months with a possible fine. The conviction under the PCC invites a minimum sentence of one year, extending up to seven years with a possible fine. Associated outcomes would be the retrospective dismissal and withdrawal of retirement benefits for Mr. Gupta and dismissal for the two officers in service with no termination benefits. It can’t get worse for these officers.

The background to coal-gate

In November 2006, the UPA government, desiring to relieve the coal shortages crippling the economy, invited applications from end-users of coal in power, steel and cement sectors for allotment of captive coal mining licenses. 1.422 applications from 344 companies for 38 coal blocks were received.

But this gigantic liberalization measure quickly acquired notoriety. A Tsunami of public revulsion at the alleged, rampant corruption in allotment followed. In August 2012, a report of the Comptroller and Auditor General – India’s public auditor, was leaked. It assessed the loss to the treasury from incorrect coal allocations between 2004 to 2009 at Rs 10.7 trillion.

The Vigilance Commissions waded in righteously and referred the case of allotment of the Thesgora B/Rudrapuri block in Madhya Pradesh, to the CBI for a preliminary investigation on June 1, 2012.

CBI lives up to its “caged parrot” reputation

The CBI lodged an FIR on October 13, 2012 against M/s Kamal Sponge Steel and Power Ltd. (KSSPL) – one of the two joint allotees. It had identified deviations from the guidelines for allotment specified by the ministry of coal. However, after investigation, it filed a closure report, stating that there was insufficient evidence to prove a criminal conspiracy to cause unlawful gain for the allotee.

The Supreme Court bats straight and hard

Meanwhile, the Supreme Court, in a separate case regarding coal allotment, ruled in August 2014, that all the coal allotments done over the period 2004 to 2009 in favour of private companies were contrary to the provisions of law and terminated them.

The CBI court takes heart and revives the case

Soon after, the CBI court rejected the agency’s closure report on October 13, 2014 and framed charges on October 1, 2015. Special Judge Parashar has been painstakingly diligent in avoiding judicial overreach. His approach has been technically exemplary. He has recorded how the ministry of coal subverted the process defined by itself and failed to exercise due diligence and adequate oversight over the actions of the coal allocation section of the ministry – headed by an undersecretary level officer. In an unedifying spectacle of poor leadership this junior officer was fingered by his immediate superiors as solely responsible for incorrectly processing the 1,422 applications received during the 36th round of coal allocation.

A tragedy of avoidable self goals in MOC

The entire process was replete with errors. The application of M/s KSSPL was incomplete. The last three years audited balance sheet were not attached as required by the advertised guidelines. But the lacuna was not red flagged. Instead, it was circulated, like all the other applications received, to the concerned administrative ministries – in this case the Ministry of Steel and the state government of Madhya Pradesh for comments and then tabled in the Screening Committee for consideration. The state government recommend that the block be allocated to M/s BLA Power – a power producer. But this recommendation was not accepted, presumably because this block was specified for non-power coal users. But then why was the application of m/s BLA Power circulated to the concerned ministries and state government, without red flagging that it was ineligible?

M/s KSSCL was invited to make a presentation to the screening committee despite their applications remaining incomplete. Worse, the prosecution established that the missing audited balance sheet had been with the applicant all along and that the applicant had overstated their production capacity and their net worth. Whilst there were no minimum conditions for net worth or production capacity, overstating both, could only have been done consciously to falsely claim a greater need for coal and a larger allotment than required. Having once stated this falsehood, producing the audited balance sheets was no longer possible. Considering these facts constructively, the charge against the company and its employees for cheating and conspiring to obtain pecuniary benefit at the expense of public interest is well established.

A conspiracy of one?

But who did the applicant conspire with in the government? Is it not possible that the applicant, simply used the loosely dispersed and poorly managed selection process to their own advantage, without the active criminal cooperation of anyone? Do not thieves enter through a door, inadvertently left open, to steal? Would the mere fact of an open door automatically make a beat policeman or the owner a co-conspirator?

Why the selective targeting of and within, the ministry of coal?

Second, even if there was a conspiracy, why was the relevant chain of officers in the administrative ministry (Ministry of Steel) or in the government of Madhya Pradesh not similarly charged? They did not object to the incorrect inclusion of the applicant. Nor did they object to the allocation, either during, or after the steering committee meeting. Was it sufficient for them to merely stress the need to evolve objective criteria for evaluating the applications in a pre-evaluation meeting convened by the MOC on May 11. 2007 without putting down their concrete suggestions on record? Secretary, Coal had specifically directed Coal India to identify the applications whose net worth was at least 20 percent of the capital needed to implement their proposed projects. The onus was on the MOC to follow up on these decisions. But nothing seems to have been done.

The fact that the MOC did not follow up on defining the evaluation process has been used as evidence of a conspiracy within the ministry to retain undue discretion possibly with the intent to cause pecuniary benefit against public interest, to be obtained by selected applicants. This is a valid concern.

But, if there was a conspiracy within the Ministry of Coal, surely the extent of it needs to be established. Could it not, for example, extend to the then Minister of Coal, who was also the Prime Minister- Dr. Manmohan Singh? Also, what about the undersecretary heading the coal allocations section. He is clearly not solely to blame. But exonerating him completely, also appears extraordinarily generous, considering that he could produce no written orders directing him to circulate the applications without checking them for completeness or eligibility per the guidelines. Is it sufficient to rely on the mere fact that the three convicted officers were all from the IAS to establish that only they were part of a conspiracy?

Was the circumstantial evidence doubt proof enough to prove guilt?

Special Judge Parashar quotes the Supreme Court on the need for convictions, based on circumstantial evidence, to establish a clear, plausible, plainly visible connectedness between the actions of the conspirators for a common illegal objective. But the evidence to support this minimum requirement to establish guilt seems far too thin and speculative in substance.

Administrative disaster but criminal conspiracy…..?

What has been incontrovertibly established is that the pre-conditions for a conspiracy to be hatched existed. But in the absence of incontrovertible evidence that a criminal conspiracy existed, whilst there is ample ground for proceeding with disciplinary proceedings against the officers concerned, indicting them criminally seems excessive.

Portia in Merchant of Venice – “The quality of mercy is not strain’d……….It is an attribute to God himself; And earthly power doth then show likest God’s; When mercy seasons justice.” William Shakespeare

The law must needs be blind, single-minded and mechanically predictable if it is to avoid selective targeting. Special Judge Parashar after penning a water tight judgement stopped short on excising the cancer of criminal conspiracy fully. Or can this be judicial self-restraint in the face of certainty, that additional indictments are around the corner to get to the root of the problem?